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Sequestration effects becoming clear for DoD

Jared Serbu, DoD reporter, Federal News Radio

As part of its planning for sequestration, the Department of Defense said it's getting rid of tens of thousands of temporary employees, and on Friday, it made clear that should the automatic budget cuts occur, the remainder of the civilian workforce would face furloughs of one day per week without pay for the rest of fiscal year 2013.

A Pentagon memo earlier this month gave defense components the go-ahead to terminate temporary hires and stop renewing term employees. Ashton Carter, the author of that memo, told Pentagon reporters on Friday that has largely happened. Forty-six thousand temporary workers have already been let go in anticipation of sequestration, a prospect that's been hanging over the government's head for a year and a half, but one that DoD's leadership apparently believes is increasingly likely.

Carter said furlough notices had not yet been issued to the department's 790,000 full-time civil servants, but DoD would have no other option if the department continues for the balance of the year without an approved budget and if sequestration takes effect. The pre-programmed cuts would reduce every program and project's approved spending by roughly 9 percent.

Operation and maintenance next worry for Pentagon

DoD's operation and maintenance accounts are what worry planners most right now. Unlike its procurement and R&D activities, which can continue to function on funds obligated in prior years, O&M dollars generally get spent right away. So to comply with the across the board cuts, DoD has to make cuts right away.

Ashton Carter, undersecretary of defense for acquisition, technology and logistics

"We've got to figure out how to spend less, because we may not get an appropriations bill," Adm. Jonathan Greenert, the Chief of Naval Operations, told sailors in Norfolk, Va., on Friday. "We've been operating so far this year as if we would get a bill. We've been eating steak when maybe we should have been eating casseroles. We're going to go where the money is. We're going to look at ship and aircraft maintenance. We're going to take away projects that we'd normally do on bases. We're going to reduce non-deployed steaming."

Greenert said if sequestration kicks in on top of a full-year continuing resolution, the Navy would face an additional 4 percent shortfall in its O&M accounts.

In the Army, the impacts to O&M would be even more severe, partially because DoD has vowed to shield the overseas contingency operations (OCO) accounts that fund the war in Afghanistan and shift the budget-cutting burden elsewhere. The service acted earlier this month to freeze civilian hiring, fire temporary workers and draw up plans to cancel depot maintenance in the second half of the fiscal year.

"My numbers say the Army's going to have to take 30 percent of base budget O&M out in order to protect their share of OCO, and that 30 percent is going to have to come out essentially in the last four months of the fiscal year," said David Berteau, a senior vice president at the Center for Strategic and International Studies. "Because by the time you lay out furlough notices and defer contracts, you really don't see any fiscal impact until about May or so."

Gordon Adams, a distinguished fellow in the Stimson Center's budgeting for foreign affairs program, said the cuts DoD is making are not surprising, but they are on-target, given the O&M cuts the department's facing.

But Adams told a CSIS forum focused on future DoD strategy and budgets that cutting civilian workforce costs and getting rid of service contractors are emergency responses and easy answers. Chipping away at the size of DoD's O&M spending beyond the immediate fiscal crisis, he said, is going to take a secretary of defense and a deputy secretary who are fiercely committed to finding efficiencies in those broad buckets of spending, which fund everything from fuel to civilian pay to military healthcare to military base landscaping, and much, much more.

Gordon Adams, distinguished fellow, Stimson Center

"O&M accounts, in my judgment, are the refuge of scoundrels," he said. "They're highly fungible dollars, and it's very hard to look at things at a programmatic level and figure out where to make tradeoffs, and therefore, in defense budgeting and planning over time, they're the place where a lot of stuff gets hidden and a lot of stuff doesn't get worked out. So while I expect sequester, if it happens, to focus on service contractors and civilian personnel, getting those real savings is going to depend on top-down management attention. They're going to have to bring the dollars down up front and force the process of efficiencies."

Under sequestration, military personnel accounts are completely exempt from cuts, and according to Todd Harrison, the senior defense budget fellow at the Center for Strategic and Budgetary Assessments, that's where DoD faces the biggest budget heartburn, at least over the long-term.

Military services' personnel budgets continue to grow

While O&M spending in DoD has been rising in recent years, it's nothing like the cost growth in the military services' personnel budget. Over the last 10 years, the cost of providing pay and benefits to uniformed service members has outstripped inflation by an average of 4.2 percent each year, Harrison said.

"If we continued allowing our personnel costs to grow at that same rate, by the year 2039, those costs would consume the entire defense budget," he said. "That obviously won't happen, so you've only got a couple other options. One is you reduce your end-strength. If you hold the military personnel share of the budget at 34 percent, where it is now, you have to reduce your end strength by another 82,000 beyond what the military already has planned. The other option is you can reduce the rate of growth in your costs. You only have to reduce the rate of growth to 1.9 percent, and all the reforms that were in the last budget request would have reduced the rate much lower than this. So this can be done."

But it wasn't done by the last Congress, which rejected almost all of DoD's proposals to rein in personnel spending in the final version of the 2013 National Defense Authorization Act.

While thinking about the DoD budget is rather bleak across the defense think tank world given the budget uncertainty this year, problems remain to be faced even if DoD gets its wish and Congress manages to pass a budget and completely cancel sequestration.

Given the natural tendency of cost growth in the Pentagon, DoD is almost certain to exceed the spending caps political leaders agreed to in 2011's budget control act, said Michael O'Hanlon, a senior fellow at the Brookings Institution.

"Right now, we're going to need additional programmatic cuts just to comply with the $487 billion in reductions that have happened so far, because we still have a plan, a program and a force structure that's too expensive for the Budget Control Act's spending levels," he said. "We always do. It's nothing the Pentagon's doing wrong, we always have a mismatch between what's in our program and what we can afford based on our projections. Stuff always costs more than we think."